Question 1 (25 Marks) Fordy (Ltd), an automotive manufacturing company is in the process of negotiating the acquisition of Gee-em (Ltd). The management estimates that the acquisition will result in economies of scale and the additional benefits will amount to R20 million. The following information is available for the two companies: Required: (round off to two decimal places, where applicable) 1.1 Calculate the exchange ratio based on market values. (2 marks) 1.2 Calculate the exchange ratio based on earnings per share. 1.3 Calculate the post-acquisition earnings per share (EPS), based on 1.2 above 1.4 Calculate the benefits, if any, to the companies. 1.5 Assume that Fordy agree to a one-for-one exchange of shares, calculate the expected postacquisition earnings per share. 1.6 Assuming a post-acquisition Price/Earnings Ratio (P/E) of 12, calculate the expected post-acquisition market price and compare it to next year's expected price without the acquisition. Should the acquisition take place? Justify your answer. (2 marks) (6 marks) (5 marks) (4 marks) (6 marks) Question 2 (25 Marks) Tshwane Homeware Ltd is a retailer of homeware appliances and accessories. Extracts of their financial reports are presented below: Statement of Comprehensive Income for the year ended 28 February 2023 Statement of Financial Position as at 28 February 2023 Management report ratios of Tshwane Homeware Ltd as compared to the industry average are as follows as at 28 February 2023: Question 4 [25 Marks] Volvit Carriers has determined that a new specialised delivery truck needs to be purchased. The truck will generate a positive net present value NPV of R480 000, calculated using the company's WACC of 20%. The truck can be leased from the manufacturer. The lease agreement requires 5 annual payments of R360 000, with the first payment due on the delivery of the vehicle. The truck can also be purchased at a cost of R2 million, inclusive of a 4 year maintenance contract with the manufacturer. The R2 million can be borrowed at an after tax rate of 12% per annum. The loan would be secured against the truck and would be amortised over the useful economic life of the vehicle. The loan payments for each of the first three years are R732 567 payable at the end of each year. The loan payment for year 4 amounts to R725 637 . The vehicle can be depreciated straight-line over the same period and will have a zero market value at the end of 4 years. Interest payments included in the year end loan payments for the respective four years are R343 000; R276 189; R197 920 and R106 229. Assume a current corporate tax rate of 30%. Round off final answers to the nearest whole number. Required: 4.1. Determine the after-tax cash flows and the net present value of the cash outflows under (22 marks) each alternative. 4.2. Briefly motivate which alternative should be recommended. (3 marks) Question 3 (25 Marks) You have been appointed as a financial consultant by the directors of Riyadh Holdings. They require you to calculate the cost of capital of the company. The following information is available on the capital structure of the company: 1500000 Ordinary shares, with a market price of R3 per share. The latest dividend declared was 95 cents per share. A dividend growth of 10% was maintained for the past 5 years. 100000012%, R1 Preference shares with a market value of R2 per share. R1 0000009%, Debentures due in 7 years and the current yield-to-maturity is 10%. R800 000 14\% Bank loan, due in December 2017. Additional information: 1. The company has a tax rate of 30%. 2. The beta of the company is 1.6 , a risk-free rate of 6% and the return on the market is 15%. 3. Round off all workings/answers to two decimal places where applicable. Required: 3.1 Calculate the weighted average cost of capital (WACC). Use the Gordon Growth Model to calculate the (22 marks) cost of equity. 3.2 Calculate the cost of equity, using the Capital Asset Pricing Model. (3 marks) PRESENT VALUE TABLES EXHIBIT 11B-1 Present Value of $1;(1+r31 EXHIBIT 13B-2 Present Value of an Annuity of $1 in Arrears; r11(1+r)n1